Question 1

Table 10-3
  
-Refer to Table 10-3.The social value of the 4th unit of output that is produced is

Accepted Answer

A)  $10. 
B)  $16. 
C)  $26. 
D)  $30. 
A)  $10. 
B)  $16. 
C)  $26. 
D)  $30.

Question 2

A corrective tax

Accepted Answer

A)  causes each factory to reduce pollution by the same amount. 
B)  assigns a legal pollution limit for firms. 
C)  places a price on the right to pollute. 
D)  costs society more than pollution regulations. 
A)  causes each factory to reduce pollution by the same amount. 
B)  assigns a legal pollution limit for firms. 
C)  places a price on the right to pollute. 
D)  costs society more than pollution regulations.

Question 3

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A)  positive externalities. 
B)  negative externalities. 
C)  patents. 
D)  All of the above are correct. 
A)  positive externalities. 
B)  negative externalities. 
C)  patents. 
D)  All of the above are correct.

Question 4

Suppose that Company A's railroad cars pass through Farmer B's corn fields.The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops.There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks.The grease costs $1,200.Suppose that the railroad is not liable for any damage caused to the crops.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

Accepted Answer

A)  The railroad will continue to operate but will pay the farmer $1,500 in damages. 
B)  The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. 
C)  The farmer will incur $1,500 in damages to his crops. 
D)  The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur. 
A)  The railroad will continue to operate but will pay the farmer $1,500 in damages. 
B)  The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. 
C)  The farmer will incur $1,500 in damages to his crops. 
D)  The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

Question 5

What is the difference between command-and-control policies and market-based policies toward externalities?

Accepted Answer

A)  Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own,whereas market-based policies regulate behavior directly. 
B)  Command-and-control policies rely on taxes,whereas market-based policies rely on quotas. 
C)  Command-and-control policies regulate behavior directly,whereas market-based policies provide incentives for private decisionmakers to change their behavior. 
D)  Command-and-control policies are efficient,whereas market-based policies are inefficient. 
A)  Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own,whereas market-based policies regulate behavior directly. 
B)  Command-and-control policies rely on taxes,whereas market-based policies rely on quotas. 
C)  Command-and-control policies regulate behavior directly,whereas market-based policies provide incentives for private decisionmakers to change their behavior. 
D)  Command-and-control policies are efficient,whereas market-based policies are inefficient.

Question 6

Once tradable pollution permits have been allocated to firms,

Accepted Answer

A)  the government controls the price of permits. 
B)  firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits. 
C)  the value of pollution-saving technology will be lower than the market value of a pollution permit. 
D)  the Coase theorem is no longer applicable as a solution to reducing pollution. 
A)  the government controls the price of permits. 
B)  firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits. 
C)  the value of pollution-saving technology will be lower than the market value of a pollution permit. 
D)  the Coase theorem is no longer applicable as a solution to reducing pollution.

Question 7

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

A)  They are equal. 
B)  The equilibrium quantity is greater than the socially optimal quantity. 
C)  The equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question. 
A)  They are equal. 
B)  The equilibrium quantity is greater than the socially optimal quantity. 
C)  The equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question.

Question 8

Government can be used to solve externality problems that are too costly for private parties to solve.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution.Under this policy,is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Accepted Answer

The supply

Question 10

An optimal tax on pollution would result in which of the following?

Accepted Answer

A)  Producers will choose not to produce any pollution. 
B)  Producers will internalize the cost of the pollution. 
C)  Producers will maximize production. 
D)  The value to consumers at market equilibrium will exceed the social cost of production. 
A)  Producers will choose not to produce any pollution. 
B)  Producers will internalize the cost of the pollution. 
C)  Producers will maximize production. 
D)  The value to consumers at market equilibrium will exceed the social cost of production.

Question 11

Which of the following statements about the Coase theorem is true?

Accepted Answer

A)  Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. 
B)  The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. 
C)  The Coase theorem applies to negative externalities,but not to positive externalities. 
D)  All of the above are correct. 
A)  Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. 
B)  The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. 
C)  The Coase theorem applies to negative externalities,but not to positive externalities. 
D)  All of the above are correct.

Question 12

Figure 10-9      
-Refer to Figure 10-9,Panel (c).The market equilibrium quantity is

Accepted Answer

A)  Q4,which is the socially optimal quantity. 
B)  Q5,which is the socially optimal quantity. 
C)  Q4,and the socially optimal quantity is Q5. 
D)  Q5,and the socially optimal quantity is Q4. 
A)  Q4,which is the socially optimal quantity. 
B)  Q5,which is the socially optimal quantity. 
C)  Q4,and the socially optimal quantity is Q5. 
D)  Q5,and the socially optimal quantity is Q4.

Question 13

Table 10-1
The following table shows the private value,private cost,and external cost for various quantities of output in a market.
  
-Refer to Table 10-1.What is the socially-optimal quantity of output in this market?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units 
A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 14

When externalities cause markets to be inefficient,

Accepted Answer

A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time,externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market. 
A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time,externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market.

Question 15

An externality exists whenever

Accepted Answer

A)  the economy cannot benefit from government intervention. 
B)  markets are not able to reach equilibrium. 
C)  a firm sells its product in a foreign market. 
D)  Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence. 
A)  the economy cannot benefit from government intervention. 
B)  markets are not able to reach equilibrium. 
C)  a firm sells its product in a foreign market. 
D)  Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence.

Question 16

Figure 10-4  
-Refer to Figure 10-4.This market

Accepted Answer

A)  has no need for government intervention. 
B)  would benefit from a tax on the product. 
C)  would benefit from a subsidy for the product. 
D)  would maximize total well-being at Q3. 
A)  has no need for government intervention. 
B)  would benefit from a tax on the product. 
C)  would benefit from a subsidy for the product. 
D)  would maximize total well-being at Q3.

Question 17

The difference between social cost and private cost is a measure of the

Accepted Answer

A)  loss in profit to the seller as the result of a negative externality. 
B)  cost of an externality. 
C)  cost reduction when the negative externality is eliminated. 
D)  cost incurred by the government when it intervenes in the market. 
A)  loss in profit to the seller as the result of a negative externality. 
B)  cost of an externality. 
C)  cost reduction when the negative externality is eliminated. 
D)  cost incurred by the government when it intervenes in the market.

Question 18

Figure 10-12  
-Refer to Figure 10-12.The graph,as drawn,could apply to the market for

Accepted Answer

A)  fire extinguishers. 
B)  historic buildings. 
C)  robots. 
D)  All of the above are correct. 
A)  fire extinguishers. 
B)  historic buildings. 
C)  robots. 
D)  All of the above are correct.

Question 19

Mary and Cathy are roommates.Mary assigns a $30 value to smoking cigarettes.Cathy values smoke-free air at $15.Which of the following scenarios is a successful example of the Coase theorem?

Accepted Answer

A)  Cathy offers Mary $20 not to smoke.Mary accepts and does not smoke. 
B)  Mary pays Cathy $16 so that Mary can smoke. 
C)  Mary pays Cathy $14 so that Mary can smoke. 
D)  Cathy offers Mary $15 not to smoke.Mary accepts and does not smoke. 
A)  Cathy offers Mary $20 not to smoke.Mary accepts and does not smoke. 
B)  Mary pays Cathy $16 so that Mary can smoke. 
C)  Mary pays Cathy $14 so that Mary can smoke. 
D)  Cathy offers Mary $15 not to smoke.Mary accepts and does not smoke.

Question 20

Which of the following statements is not correct?

Accepted Answer

A)  Government policies may improve the market's allocation of resources when negative externalities are present. 
B)  Government policies may improve the market's allocation of resources when positive externalities are present. 
C)  A positive externality is an example of a market failure. 
D)  Without government intervention,the market will tend to undersupply products that produce negative externalities. 
A)  Government policies may improve the market's allocation of resources when negative externalities are present. 
B)  Government policies may improve the market's allocation of resources when positive externalities are present. 
C)  A positive externality is an example of a market failure. 
D)  Without government intervention,the market will tend to undersupply products that produce negative externalities.

Exam 10: Externalities

Table 10-3 -Refer to Table 10-3.The social value of the 4th unit of output that is produced is

A corrective tax

Corrective taxes are typically advocated to correct for the effects of

What is the difference between command-and-control policies and market-based policies toward externalities?

Once tradable pollution permits have been allocated to firms,

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Government can be used to solve externality problems that are too costly for private parties to solve.

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution.Under this policy,is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

An optimal tax on pollution would result in which of the following?

Which of the following statements about the Coase theorem is true?

Figure 10-9 -Refer to Figure 10-9,Panel (c).The market equilibrium quantity is

Table 10-1 The following table shows the private value,private cost,and external cost for various quantities of output in a market. -Refer to Table 10-1.What is the socially-optimal quantity of output in this market?

When externalities cause markets to be inefficient,

An externality exists whenever

Figure 10-4 -Refer to Figure 10-4.This market

The difference between social cost and private cost is a measure of the

Figure 10-12 -Refer to Figure 10-12.The graph,as drawn,could apply to the market for

Mary and Cathy are roommates.Mary assigns a $30 value to smoking cigarettes.Cathy values smoke-free air at $15.Which of the following scenarios is a successful example of the Coase theorem?

Which of the following statements is not correct?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply,demand,and Government Policies

Consumers,producers,and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Market for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Table 10-3 -Refer to Table 10-3.The social value of the 4^th unit of output that is produced is